The term fringe benefits refer to the extra benefits provided to employees in addition to the normal compensation paid in the form of wage or salary.
Many years ago, benefits and services were an insignificant part of compensation.
But now the situation has changed, as these have, more or less, become important components of a comprehensive compensation package offered by employers.
The most organization has been extending fringe benefits to their employees.
Importance of Fringe Benefits in an Organization
The need and importance of fringe benefits can be explained under the following headings:
1. To Retain the Employees
The primary ned of fringe benefit type of compensation is to retain the employees in the organization o a long-term basis.
2. To Motivate Performance
Employees prefer fringe benefits to pay hike, to motivate employees to give their best to the organization.
These serve to motivate employees to higher productivity.
These improve morale and work as an effective advertisement.
3. Employee Demands
Due to the rising price index and cost of living, employees demand more and varied types of fringe benefits.
They also desire fringe benefits rather than pay hike because of a reduction in the tax burden on the part of employees.
4. As a Social Security
The employer has to provide various benefits like safety measures, accident compensation, medical facilities, etc. with a view to providing security to his employees against various contingencies.
5. To Improve Human Relations
Human relations is maintained when the employees are satisfied economically and psychologically.
Fringe benefits satisfy the worker’s economic, social, and psychological needs.
Most of the befit minimize the economic problems of the employee.
Consumer stores, credit facilities, recreational facilities, etc. satisfy the worker’s social needs, whereas retirement benefits satisfy many psychological problems of the employee.
6. Trade Union Demands
Trade unions also compete with others for getting more and newer varieties of fringe benefits to their members.
Related: Types of Employee Training Strategies for Today’s Workforce.
7. Statutory Requirements
Since the 1950s, a series of social legislations incorporated a wide variety of fringe benefits. Certain benefits have become statutory.
The factories act stipulated a number of facilities like canteen, rest sheds, creches, etc. on the premises.
The maternity benefits act provides for special leave with pay.
8. Hazards of Industrial Life
Industrial jobs are risky to employee health and dafty.
They may lead to occupational diseases, accidents, and loss of limb or life.
To protect employees from industrial hazards, certain provisions of services and benefits have been incorporated, in-laws.
The benefits also provide for the normal health care of employees and their families.
Some large organizations have their own hospitals. Some companies extend post-retirement health care benefits to their employees.
9. Tax Considerations
Tax considerations also induce employees and organizations to develop new types of fringe benefits.
The company tries to provide for tax-free benefits to enable the employees to have maximum value for a given remuneration package, without the company having to incur extra costs.
10. To Maintain Body and Mind
The importance of leavers, holidays, and various services for rest and recuperations to maintain an agile body and creative mind is also understood.
In view of these, firms are not only proving paid leaves of different kinds but also grating facilities for leave travel.
11. Skill Shortage
Despite unemployment, there is a skill shortage.
Organizations continuously face problems attracting and retaining the right people.
Hence, a variety of incentives and benefits are being offered to attract a competent and efficient workforce.
12. Other Points
- Fringe benefits help build up a good corporate image.
- They boost the real earnings of the employee and give them extra spending money.
- They create a favorable attitude towards a particular job and company.
- They maintain and increase the material welfare of employees.
- They reduce the physical and mental strain of workers.
- They increase productivity.
- They develop a sense of belongingness to the organizations.
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